VICI and CareTrust will profit as baby boomers retire early.
Millions of baby boomers were faced with a choice when the pandemic began: learn an entirely new way of working (from home) or pull the pin and retire earlier than they may have planned. Just over half of Americans age 55 or older are out of the workforce due to retirement, and over the past two years, the growth rate of new baby boomer retirees is over three time higher than it was before the pandemic .
It’s possible that some of these people will have to go back to work as inflation grows and the stock market downturn takes a bite out of their retirement savings, but many of them will stay retired. The two REITs (real estate investment trusts) we’re going to talk about today, VICI Properties (VICI 3.91%) and CareTrust REIT (CTRE 2.44%), are capitalizing on the boomer retirement boom. Let’s discuss how.
VICI
VICI owns and leases entertainment and casino properties. It owns 43 casino properties, including 13 in Las Vegas, and has properties in 14 other states. Las Vegas properties make up 45% of its rent roll. It owns 39,700 hotel rooms and 5.9 million square feet of space on the Las Vegas Strip alone.
VICI’s bet is that as baby boomers retire, they will start spending more and more time at casinos. Since it was formed as the result of a spinoff in 2017, VICI has done $29 billion of deals and issued $17 billion of equity.
The REIT has a 100% occupancy rate and collected 100% of rent owed through the pandemic. The high barriers to entry in the casino world make it unlikely that it will ever endure prolonged vacancies. It’s also focusing on combating inflation. Forty-seven percent of leases have escalators based on the consumer price index (CPI) in 2022 and 96% will have the escalators in 2023.
It is still a relatively young company and revenue is growing quickly, rising 25% in 2021 . Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) is up from $690 million in 2017 to $2.6 billion in the four quarters ended March 31.
Usually, companies growing as fast as VICI do by forsaking a dividend and reinvesting all net income back into the business. As a REIT, VICI isn’t allowed to do that. Its profitable lease income is paid out to shareholders. Right now, the dividend is just under 5%. VICI could represent both growth and income in your portfolio.
CareTrust
CareTrust is a healthcare REIT that specializes in senior housing, skilled nursing, and related properties. Like VICI, it was spun off relatively recently, in 2014. It owns 228 properties in 29 states with almost 24,000 beds .
When you see senior housing, you may be quick to assume the REIT majors in assisted-living facilities, which are often utilized by those aged 75 or older and don’t really fit into our thesis for this article. But CareTrust’s focus is on skilled nursing facilities.
Skilled nursing facilities are where patients can stay when they need around-the-clock care after some sort of medical procedure. The facilities are typically staffed by healthcare providers and physical and occupational therapists. Stays in a skilled nursing facility are typically longer than hospital stays but are still short term as the patients use the stay to work toward being able to return home.
Baby boomers who undergo intensive surgery, to replace both knees or a hip, may choose to stay in a skilled nursing facility while rehabbing form the surgery (and before making a couple of trips to casinos). Like VICI, CareTust has been growing quickly. It owned 94 facilities when it was spun off in 2014 and has purchased 165 since then, an average of 20 per year . Also like VICI, it has a healthy dividend yield of 6.3 %.
Macro trends
In times of economic uncertainty, it makes sense to find investment options that are driven by strong long-term macro trends. No matter what happens to the stock market over the next year or two, there will be plenty of baby boomers going to casinos and needing skilled nursing care over the next 10.
